Quarterly US Rural Economic Review: Trade War Risks Loom Over Agriculture

Key Points

• Talk of trade wars is complicating the U.S. economic outlook, but fiscal stimulus in the form of tax cuts and increased government spending will boost U.S. growth over the next 18 months.
• There are three areas of concern with respect to the U.S. economy: The pace of increase in interest rates, uncertainties with respect to trade policy and the potential political volatility surrounding the Congressional elections in November. It is unlikely that any of these could significantly derail the 2018 growth path but current optimism for 2019 could be dampened.
• Persistent drought in Argentina could cut soybean output there by 20-30 percent. Global soybean stocks are at multi-year highs, but Argentina’s sharp production loss puts increased focus on the U.S. growing season.
• Demand for animal protein and dairy products is strengthening domestically and abroad. U.S. meat and poultry production also continues to increase steadily, while dairy production remains stubbornly high.
• Several U.S. specialty crop industries are suddenly faced with the potential that 15 percent tariffs could be imposed on their exports to China. Most nuts, dried and fresh fruits, and wines would be impacted by the levies. In 2017, China accounted for the following share of U.S. exports: wine – 4%, fresh fruit – 3%, processed fruit – 10%, tree nuts – 3%.
• This year will likely be viewed as an inflection point for battery storage, largely due to FERC Order 841. The order is transformative in its spirit that advances the role battery storage technology will play in shaping the future of the power and energy sector.
• The $1.3 trillion Federal spending package passed in late March included $600 million for the USDA to create a pilot program within the Rural Utilities Service to support the buildout of rural broadband. The sum falls short of the $2.5 billion the industry has been hoping for, but a future infrastructure bill could add to the total.

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